Audits and risk

2) Why is there greater risk for an individual accounting worker than there was before?

3) Why is the primary objective of an audit is to add credibility to management's financial statements?

4) "Outside auditors are used to do an audit of the companies financial statements. They do very little, if any consulting on internal problems unless they are directly related to the financial statements". Why it this so?

Solution Preview

1 - Basically, companies that receive unqualified audit opinions from their auditors are seen as the most credible. Investors are more likely to purchase products from companies that they have invested in, on average, and the consumers that are not investors in the company's stock want to also see unqualified opinions before buying the company's products. An unqualified audit opinion shows that the auditors found no deviations, no misstatements, and no other elements on the financial statements that were cause for concern. The auditors are certifying that in their opinion, the financial statements are in accordance with GAAP and that they have met each of the audit assertions. Customers don't want products where the company has engaged in wrongdoing, and the audit provides ...

Solution Summary

In this solution, I discuss how an audit affects demand, various audit risks, and audit objectives. I thoroughly discuss each of the questions in detail presented by the student.